Question

Step 1:

Enter the following entries for the month of August. A. Purchased raw materials on account: $3,100. B. Selling and Administrative expenses incurred and paid: $1,200. C. Used direct materials: $3,900. D. Used indirect materials: $300. E. Manufacturing wages incurred totaled $4,000, of which 90% was direct labor and 10% was indirect labor. F. Incurred other actual factory overhead on account: $1,300. G. Factory Overhead was allocated to Work in Process Inventory at a predetermined overhead allocation rate of 60% of Direct Labor costs incurred during August. H. The cost of product completed: $10,000. I. Sales on account: $17,500. The cost of the units sold was $9,500.

Step 2:

Adjust for over or underallocated overhead.

Once you have entered the journal entries in Step 1 above, prepare and enter the necessary adjusting entry to correct for the overallocated or underallocated Factory Overhead. This entry should be dated “August 31, 2017.” For the "Description," enter "Journal Entry J.”

Answer 1

Solution

Step 1: Entries

Date	Account Titles	Ref.	Debit	Credit
Aug	Raw Materials Inventory`	$3,100
	Accounts Payable		$3,100
	(To record purchase of raw materials on account)
Aug	Selling and Administrative Expenses	$1,200
	Cash			$1,200
	(To record selling and administrative expenses paid)
Aug	Work in Process	$3,900
	Raw Materials Inventory`	$3,900
	(To raw materials used in production)
Aug	Factory Overhead	$300
	Raw Materials Inventory`	$300
	(To record use of indirect materials)
Aug	Work in Process	$3,600
	Factory Overhead	$400
	Accounts Payable		$4,000
	(To record direct and indirect wages incurred, 4,000 x 90% = 3,600 and 4,000 x 10% = 400, respectively)
Aug	Factory Overhead	$1,300
	Accounts Payable		$1,300
	(To record factory overhead incurred)
Aug	Work in Process	$2,160
	Factory Overhead		$2,160
	(To record factory overhead assigned to work in process at 60% of direct labor cost; 3,600 x 60% = $2,160)
Aug	Finished Goods Inventory	$10,000
	Work in Process		$10,000
	(To record cost of products completed)
Aug	Accounts Receivable	$17,500
	Sales			$17,500
Aug	Cost of Goods Sold	$9,500
	Finished Goods Inventory	$9,500
	(To record cost of goods sold)
Step 2:
Adjustment for over or under allocated overhead:
Aug-31	Factory Overhead	$160
	Cost of Goods Sold	$160
	(To record adjustment for over-applied factory overhead)

(over applied overhead = 2,160 - (300 + 400 + 1,300) = $160)